Editorial: State should heed slump warning

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The fact that two new California university reports are forecasting a statewide slowdown in economic growth might not seem like the most cheerful news. But it is considerably better than the widely feared alternative — a full-blown recession caused by decline in the state’s real estate market.

Both the UCLA Anderson Forecast and the University of the Pacific, which issue quarterly reports on the Golden State’s economy, see continued growth during the next two years — although they say it is unlikely to be as robust as this year. Anderson sees 0.5 percent payroll growth in 2007 and 1 percent in 2008, down from 1.5 percent in 2006. Personal income and taxable sales after inflation would increase some 2 percent yearly.

Meanwhile, Stockton’s University of the Pacific researchers predicted that, despite uncertainty from the real estate slowdown and gasoline price gyrations, California’s gross product would still grow 6.2 percent in the current year and then slow to an annual average of 4.8 percent through the end of 2009.

Both universities agreed that decreased home sales along with falling or flat prices in the housing market would not be enough to push California intoa deep recession unless some other bright spots in the state economy suddenly fail also.

This overall forecast is bolstered by the findings of real estate research company HomeSmartReports.com, which claims that mortgages in San Francisco and San Mateo counties have become 14.7 percent less risky for lenders, and the California statewide risk factor is down 13.4 percent.

A lower mortgage risk is believed to be a good indicator that housing prices are stable within a specific market. HomeSmartReports.com theorizes that lenders have become more careful in a sluggish market and fewer buyers are stretching themselves thin in hopes of making a quick resale profit.

The Anderson Forecast insists that "manufacturing is not poised to contribute much to job loss" and "real interest rates are very low and there is no evident credit crunch ... on the horizon." Without a secondary business weakness in California economy, the sluggish housing market is not enough to spark a major regional recession.

With the strong comeback of high-tech and tourism plus the emergence of biotech and continued strength of agriculture, California’s overall fiscal stability appears sound. UOP and UCLA both project that neither consumer spending nor the state budget will suffer a big enough hit to bring on a recession. The universities point to the recent "soft landing" in the United Kingdom, which has been in prolonged real estate doldrums since the end of its flashy 2002-03 housing boom.

Still, the near-universal forecast of at least a minor economic slowdown in California for at the next two to three years should be considered ample warning to Sacramento politicians that it is time to tighten up on spending and become truly serious about eliminating continued yearly deficits.